Bankers expect to see more leveraged buyout deals towards the end of the quarter, while refinancing deals are anticipated to still be a key driver of the market at the start of the year.

The European levfin market has been struggling with an absence of LBO deals, which typically allow higher fees for bookrunners.

“I don’t think the M&A pipeline will start to impact technicals until well into Q1 at the earliest, [while] Q1 is more likely to be the same [as previous years],” said a leveraged finance banker.

“The refinancing trend is likely to continue in Q1, and we will see more direct lending going into broadly syndicated loans,” he said.

Of the €12bn or so of European high-yield bond and loan deals of which the banker is aware of, slightly more than one-third of the transactions will be M&A-related, he said. 

The most anticipated LBO deal that could come in Q1 is the jumbo financing backing the proposed acquisition of Sanofi’s consumer health business Opella by Clayton Dubilier & Rice. The overall transaction, which has 22 banks on it, includes a €7.3bn-equivalent levfin package and a €1.2bn revolving credit facility.

On the levfin side about €2bn is expected to be in high-yield bonds denominated in US dollars and euros, while the rest will be in loans and also in the two currencies, according to a second banker, who is familiar with the deal.

The exact mix of the currencies will be worked out once the deal is in the market, which is likely to come in late Q1 or early Q2, he said.

Another potential deal could be from Spanish pharmaceutical Grifols, which has included a special redemption clause in a recently issued €1.3bn private placement that allows Canadian private equity firm Brookfield to trigger an early repayment if it eventually takes over the company, leaving the door open for an LBO deal.

Bankers had been disappointed that Brookfield dropped a bid for Grifols in late November, which they say could have created a €9.5bn debt underwriting opportunity.

The lack of LBO deals in 2024 meanwhile means private equity sponsors feel more pressure to get deals done this year, which could create a more active M&A pipeline.

“We are seeing auctions manage to get interest including for assets qualified as okay but not prime … the animal spirits have clearly been awoken and we are expecting a lot more to come,” said the first banker.

“There is significant pent-up demand in the sponsor universe. We saw headlines of sponsors increasingly wanting to exit and dispose assets … We see a lot of momentum for 2025 and onwards,” said a third banker, adding that the second half of the year could be “weighted” in terms of new money and LBO-related deals.

Double B expected

In the more immediate term, the high-yield bond pipeline is not expected to be “magnificent”, according to a fourth banker.

Bankers expect the first batch of high-yield deals for the year to be most likely regular refinancing deals done by Double B issuers as they don’t need much marketing.

Double B names are usually the first ones to come after a quiet period, as they are safe names to test the waters, said a credit fund manager.

Source: IFR